Five things employers need to focus on this new tax year

The 2020/1 Budget Speech from Finance Minister Tito Mboweni had few earth-shattering announcements from a payroll perspective, and we are still waiting for clarity on key issues such as the National Health Insurance (NHI) and annuitisation of retirement funds. Nonetheless, there were a few announcements that deserve employers’ attention.

Let’s take a look:

1. Tax-free savings/investment accounts

Minister Mboweni announced an increase in the maximum contribution threshold for tax-free savings and investment accounts from R33 000 to R36 000 per tax year. The lifetime contribution threshold remains at R500 000. The benefit of these accounts is that the proceeds are exempt from tax – dividends tax, income tax and capital gains tax.

Given that most employees received some PAYE tax relief in the budget, they can benefit from putting some of this money into a tax-free savings account. Educate them about the options on the market – it’s a great way for people to build a nest-egg or rainy-day fund. Tax-free savings products complement retirement savings in that they offer more flexibility in investment mandates.

2. National Minimum Wage

The National Minimum Wage (NMW) has increased, with effect from March 2020, to:

• R20.76 per hour;
• R18.68 per hour for farmworkers;
• R15.57 per hour for domestic workers;
• R11.42 per hour for workers employed on expanded public works programme; and
• specified rates per week in the case of learnership agreements.

Employers should ensure their payroll systems are up to date and keep an eye open for future increases. Remember that some sectors have different wage regulating measures (sectoral determinations, bargaining council agreements or collective bargaining agreements) – employees who fall under these regulating measures should be paid accordingly.

3. Foreign Employment Income Exemption threshold

The Budget Speech proposed that the foreign employment income exemption be increased from R1 million to R1.25 million effective March 2020. If you have South African employees working outside the country, you need to monitor their remuneration to determine when the R1.25 million exemption has been exceeded and ensure that PAYE is withheld.

In the case of possible double taxation, employers can apply for a directive (IRP3(q)). If granted, SARS will allow the employer to reduce monthly PAYE to provide relief to the employee, so they don’t need to wait until assessment to receive a refund. Upon assessment, SARS will perform a final tax calculation, taking into account the declared foreign tax credits. Employees will need to provide proof they paid tax in the foreign country.

Five things employers need to focus on this new tax year

4. Review your subsistence allowance policy

Where an employee spends at least one night away from home on a South African business trip, the following amounts are deemed to have been expended for each day or part of a day for –

• meals and incidental costs, R452
• incidental costs only, R139

Employees do not have to prove expenditure in their tax assessment when the employer pays them R452 or less per day for meals and incidental costs, or R139 or less per day for all incidental costs. There are separate rates on the SARS website for when an employee travels outside of South Africa.

When an employer pays a subsistence allowance to an employee who did not spend at least a night away from home, the employee must be taxed on the allowance. Also, be careful of the amount you pay per day – if you pay more than the “deemed” amounts as mentioned above, and the employee does not have proof of the actual expenditure, they will owe SARS money.

5. Simplified and automated tax administration

There are plans brewing to relieve employees of the need to file individual tax returns and to simplify the annual employer reconciliation (EMP501) submission for employers. This will not happen in the next year or so, but employers should look out for news and announcements from SARS.

The transition to this new approach will empower employees to monitor their tax obligations during the year. This is a good time to start educating your employees about how PAYE (Pay-As-You-Earn) is calculated, which allowances are exempt, which deductions are allowed, and so forth. This will equip them to understand more about their own tax affairs once the reforms are implemented.